(1) GUNFLEET SANDS LIMITED (2) GUNFLEET SANDS II LIMITED (3) WALNEY (UK) OFFSHORE WINDFARMS LIMITED (4) ORSTED WEST OF DUDDON SANDS (UK) LIMITED v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2023] UKUT 00260 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Judge Swami Raghavan,Judge Tracey Bowler |
| Subject Matter | 27 October 2023 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 27 October 2023 |
Neutral Citation: [2023] UKUT 00260 (TCC) Case Number: UT/2022/00053-57
UPPER TRIBUNAL
(Tax and Chancery Chamber) Rolls Building, London
CORPORATION TAX – s11 Capital Allowances Act 2001 – taxpayers designed and
constructed offshore windfarms – FTT entitled to hold wind turbines and cables together were
single item of plant – HMRC’s appeal dismissed – whether expenditure on environmental and
technical studies qualified for allowance as expenditure “on provision of plant” – no –
jurisdiction of the tribunal where HMRC had made the wrong amendment to a return – when
an amount in a tax return is conclusively determined – Schedule 18 Finance Act 1998
Heard on: 5,6,7,8 June 2023
Judgment date: 26 October 2023
Before
JUDGE SWAMI RAGHAVAN
JUDGE TRACEY BOWLER
Between
(1) GUNFLEET SANDS LIMITED
(2) GUNFLEET SANDS II LIMITED
(3) WALNEY (UK) OFFSHORE WINDFARMS LIMITED
(4) ORSTED WEST OF DUDDON SANDS (UK) LIMITED
Appellants / Respondents
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents /Appellants
Representation:
For the Appellants: Michael Jones KC, Counsel, instructed by Herbert Smith Freehills LLP
For the Respondents: Elizabeth Wilson KC, and Angharad Parry, Counsel, instructed by the
General Counsel and Solicitor to His Majesty’s Revenue and Customs
1
DECISION
INTRODUCTION
1. This decision deals with HMRC’s and the taxpayers’ appeals against a decision of the
First-tier Tribunal (Tax Chamber) (“FTT”) published as Gunfleet Sands Limited and others v
HMRC [2022] UKFTT 35 (TC) (“the Decision”). The appellant companies, (each members of
the same corporate group headed by Orsted A/S, a Danish company (“Orsted”)) each carry on
the trade of generating and selling electricity from windfarms located on various sites off the
UK coastline. The appeals principally concern whether expenditure the taxpayers incurred on
various environmental impact, technical/engineering studies (e.g. on wind, ocean and seabed
conditions) and project management costs when setting up the windfarms was qualifying
expenditure for the purposes of s11 of the Capital Allowances Act 2001 (“CAA 2001”), the
particular issue being whether that expenditure was “on the provision of” plant or machinery.
The relevant expenditure was significant and totals around £48 million.
2. Because it affected the ensuing analysis of what expenditure qualified, the question of
what constituted the plant was itself disputed (“the single/multiple issue”). The FTT rejected
HMRC’s case that each wind turbine and each connector cable were separate items of plant
instead agreeing with the taxpayers that the plant was made up, in respect of each windfarm
site, of the wind turbines and cabling collectively (the so called “generation assets”). HMRC
appeal the FTT’s conclusion on the single/multiple issue.
3. The FTT went on to consider each of the sets of environmental and other technical
studies, finding that only some types of study (and in some cases study expenditure only in
relation to a particular windfarm site) were qualifying, while others were not (“the qualifying
expenditure issue”). The taxpayers and HMRC each appeal respectively against the FTT’s
decision in relation to the study expenditure which the FTT found against them on.
4. The taxpayers also appeal various other issues on which the FTT found against them:
whether the taxpayers were otherwise entitled to relief for the expenditure claimed as a revenue
deduction under s61 Corporation Tax Act 2009 (“CTA 2009”) (the “revenue deduction
issue”) and as to whether amounts had been conclusively determined as well as the tribunal’s
jurisdiction and power to amend the returns in view of the relevant returns and closure notices
(“the quantum and closure notice issue”).
BACKGROUND FACTS AND FTT DECISION
5. Over the course of the two-week hearing, the FTT received a great deal of evidence
comprising documents, a slideshow including videos, and oral evidence from five witnesses
including two expert engineering witnesses. We pay tribute to the FTT’s effort and skill in
distilling these vast materials into a set of relevant and well organised underlying findings of
fact, to which no challenge is made by either party. We do not, in our decision attempt to
replicate the full detail of those findings, but merely to reflect enough of it to put the parties’
respective appeals in context.
6. Each windfarm consists of a collection or array of wind turbine generators (“wind
turbines”) which are usually identical and are connected together electrically by cables and
then further connected via substations to the public grid. The areas of sea in which the
windfarms are located are vast. To give a sense of scale, the two windfarms at Gunfleet, off the
coast of Essex, comprise 30 wind turbines covering approximately 17.5 km2. The windfarm at
Walney off the coast of Cumbria was made up of 102 turbines covering approximately 73 km2.
7. We were shown pictures of a typical off-shore wind turbine, which broadly resemble the
on-shore wind turbines which are a familiar sight around the country. Each wind turbine, which
is designed to convert kinetic energy in the wind into electrical energy, is made up of a number
2
of component parts. At the top is the rotor (normally three blades of approximately 50-60m in
length), the gearbox and generator, housed in a covering called a nacelle. This is the turbine. A
cable conveys the electricity generated by the turbine down the inside of a metal tube (the
tower) on which the turbine sits. The wind turbine is secured to the seabed by a foundation
which is connected to the tower by way of a transition piece.
8. Each wind turbine is connected by a cable known as an array cable to an offshore
substation. Each array will usually connect five or six wind turbines to the substation. A high
voltage cable (export cable) transmits electricity from offshore to an onshore substation from
which the electricity is then transmitted to the National Grid.
9. The FTT made findings on: the operation of the wind turbines and the windfarms (each
turbine behaves and operates as a single system and can operate independently of the others,
but the windfarm was designed to work as a single system), the functioning of “SCADA”
(supervisory control and data acquisition system) a high level control data collection system
housed in the onshore substation, and on how layout or configuration needed to be optimised
so as to maximise energy yield (by placement of turbines so as to minimise the “wake” of a
given turbine which could reduce the efficiency of other turbines downwind).
10. It set out the construction process which included design, procurement, manufacture,
supply and installation of the wind turbines (external manufacturers, such as Siemens, and
contractors were used to fabricate and install the wind turbines) and the fact that while the
foundations were bespoke to each turbine, the turbines were not.
11. The FTT summarised the steps in developing an offshore windfarm from the Crown
Estate seeking bids and its identification of sites for each development, Orsted’s pre-bid “desk-
top” studies to assess site suitability and whether to make a bid, and the consents it required
following bid acceptance, part of which process entailed submitting an environmental
statement produced after it had carried out various environmental impact assessments. At the
same time initial “metocean” studies and surveys (of wave and sea conditions) and geophysical
and geotechnical investigations took place. Post-consent, further detailed geophysical and
geotechnical studies were undertaken which enabled the design of the individual wind turbine
foundation locations and the design of the foundations and which could mean reconfiguration
of the site. We will cover more of the detail of the various environmental and other studies
under Issue 2.
LAW
12. Section 1(2)(a) of CAA 2001 provides allowances in respect of capital expenditure in
respect of, inter alia, plant and machinery.
13. Section 11 of CAA 2001 sets out the general conditions as to the availability of plant and
machinery allowances:
“11 General conditions as to availability of plant and machinery
allowances
(1) Allowances are available under this Part if a person carries on a qualifying
activity and incurs qualifying expenditure.
(2) “Qualifying activity” has the meaning given by Chapter 2.
(3) Allowances under this Part must be calculated separately for each
qualifying activity which a person carries on.
(4) The general rule is that expenditure is qualifying expenditure if—
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